Moving to another country is a big change. One of your first priorities is finding a house. If you have chosen to get a housing loan, then pay attention to our explanation of how to obtain credit in Portugal, and under what terms.
Portuguese real-estate is going through a very strong phase, supported by a rise in the Portuguese economy and the interest the country has generated. Accordingly, the financial sector’s interest in granting housing loans has also risen. The amount which the banks are willing to lend has increased and the spreads are getting lower.
The first thing you need to do is to see what conditions the banks are offering, and request simulations. They will calculate your effort rate, that is, the weight of your instalments and other fixed expenses in relation to your family budget. Based on your financial situation, the bank will then make a proposal.
The importance of the evaluation
One of the most important phases in applying for credit is the evaluation of the real estate. This figure will be the benchmark which will determine the maximum amount you can request for your housing loan.
The Bank of Portugal advises banks and financial institutions not to lend more than 90% of the value of the real-estate when the purchase is for a permanent residence. For other purposes the maximum percentage is 80%. The banks can loan up to 100% when the credit is for real estate which is owned by the institutions themselves or for property leasing contracts.
The central bank also has fixed limits for the loan period. The maximum is 40 years, but cannot exceed the amount of years remaining until the borrower turns 80 years old.
Spread versus APR
One of the most important features of a loan is the spread, a component of the interest rate of the housing loan which is defined by the bank on a case by case basis, from which the institution will derive its profit margin.
This profit margin varies from bank to bank, however, depending on the associated financial products that you sign up for. The more you are involved with the bank, i.e., the more products you purchase, the lower the spread. But it is important to calculate the full costs linked to the loan.
More important, however, than the spread on the property is the value of the Annual Percentage Rate (APR), which is the total cost that is supported by the client for a certain loan, as well as the Total Amount Payable by the Consumer (TAPC). These rates will determine the real cost that you will have to bear with the loan you are thinking of obtaining.
Variable or fixed rate?
Another decision you’ll have to make is what type of rate you want. You can go for floating, flat or mixed.
Most housing loans in Portugal are still indexed to a floating rate, Euribor. However, an increasing number of people have been choosing the flat rate option for their loans.
If you do choose the floating rate, it will most likely be fixed for 12 months (most banks only use the 12 month rate), which means that the value of your loan will only change once a year.
The flat rate, on the other hand, can be for the full length of your loan, or just for a few years. It all depends on your expectations. If you’d rather not have your rate swinging, then you’ll probably prefer a flat rate.
What are the costs associated to getting credit in Portugal?
There are a number of costs associated to getting credit in Portugal. Firstly, you will have to pay for all the paperwork required to get your loan, including taxes and registration fees. You’ll also have to pay for the viability study for the operation, the property evaluation, the preparation and the formalisation of the contract.
Besides the expenses owed to the bank, you’ll also have to pay stamp duty on the transaction (0,8%) and on the loan, as well as the registration of the deed and the Municipal Property Transfer Tax (IMT).
The deed can be celebrated at a registrars, at a notary or through Casa Pronta.
Associated insurance policies
There are insurance policies you must subscribe to when you get a housing loan in Portugal, these will be required by the institution which grants the loan. Firstly, you will have to contract multi-risk insurance and life insurance. The former covers possible damage to the property, whereas the latter guarantees payment of the debt in the case of death or invalidity of one of the borrowers.
In Portugal, you are also obliged to contract an insurance that covers fire damage to the building. Besides these, there are optional insurances, such as home content insurance.
Paperwork required for signing the deed
The deed is the moment when the purchase of the property is formalised. After having picked the property, obtained credit and dealt with all the red tape, all you need to do is sign the deed to make it yours. So you really don’t want to forget anything! These are the documents you’ll need:
- Signed sale agreement for the property;
- Energy and air quality certificate for the property;
- Land Registry Certificate;
- Description of the Property, or Request for registration (IMI Form 1), as issued by the Tax Authority;
- Usage permit;
- Housing license;
- Infrastructure certificate;
- Toponymic certificate;
- Proof of payment of stamp duty;
- Proof of payment of Municipal Property Transfer Tax (IMT);
- If the property already had a mortgage, then proof of payment of the previous debt must be presented also.